Every year, Pakistan spends three to four billion dollars on the import of crude edible oils and oilseeds. Increased local production of oilseed crops and the improved working of the domestic edible oil refining industry can help reduce this huge import bill.

The ongoing joint agricultural revival plan of the federal and provincial governments does acknowledge it. But whether this plan, progressing at a slower than desired pace, can actually deliver results is yet to be seen. The import bill of edible oils and oilseeds showed a declining trend in 2018-19 and in the first half of 2019-20 largely because of slower economic growth, soft international prices and a slump in the domestic industrial production. The higher local output of oilseeds and enhanced efficiency of the domestic edible refining industry had a little hand in it.

Softer international prices of soybean and palm oil in 2019 helped Pakistan keep import bills low in 2018-19

In 2018-19, cumulative imports of palm oil and soybean oil fell to roughly $1.95 billion from $2.14bn in 2017-18. Imports of oilseeds slipped to $1.23bn from $1.33bn, according to the State Bank of Pakistan (SBP). Thus, the overall import payment against crude edible oils and oilseeds totalled $3.18bn in 2018-19 against a little less than $3.47bn. But GDP growth in Pakistan tumbled to 3.3 per cent in 2018-19 (from 5.5pc in 2017-18). The local production of cooking oil grew just 2.7pc in 2018-19 against 7pc in 2017-18 whereas the production of vegetable ghee recorded an outright decline of 2.66pc against a nominal growth of 1.6pc.

This exposes the government’s claim that the total spending on imports of crude edible oils and oilseeds has started falling owing to its policies to promote the cultivation of oilseed crops. The fact that average import prices of both palm oil and soybean oil remained soft throughout 2019 — $600 and $760 per tonne, respectively, against $639 and $789 per tonne in 2018 — also brings the veracity of this claim in question.

Softer international prices of palm and soybean oils in 2019 helped Pakistan keep import bills low in 2018-19 and also in the first half of 2019-20. But prices started rising from January. Commodity watchers around the globe are projecting an uptick in average annual prices of palm and soybean oil in 2020. This can potentially increase our import bill of crude edible oils in the second half of this fiscal year, partly offsetting the import savings made in the first half of the year. In July-Dec 2019, cumulative imports of palm oil and soybean oil fell to $883.2 million from $980.4m in the year-ago period, according to the Pakistan Bureau of Statistics (PBS).

Oilseed imports in the first five months of 2019-20 also contracted to $460m from $547m in July-Nov 2018 in continuation of a declining trend seen in the entire 2018-19. But in the first five months of 2019-20, the local cooking oil and vegetable ghee output showed a rising trend (unlike in entire 2018-19).

This is where one gets an indication of better showing of domestic oilseed crops on the assumption that higher production of cooking oil and vegetable ghee is not possible without a rise in the local output of oilseed crops at a time when imports are contracting. If this really is the case then one will have to wait for the release of final data on the total production of all oilseed crops (including cottonseed, rapeseed or mustard, sunflower and canola) and the ratio of edible oil extraction from them.

Given the fact that cotton’s output has shrunk this year, oil extracted from cottonseed is likely to decline. But the share of this oil in the edible oil industry remains small even otherwise because 95pc of cottonseed oil is used for poultry and animal feed industry.

The Ministry of National Food Security and Research is hoping for a greater contribution from mustard, sunflower and canola as the production of these crops is expected to remain higher than last year’s. Additionally, safflower, custard and other minor edible oilseed crops are also expected to remain strong. Olive orchards in Punjab have reached the fruition stage and olive supplies from there have also set the stage for local olive oil production.

In mid-January, the National Highway Authority and state-run National Bank of Pakistan signed a memorandum of understanding for the plantation of olive oil trees alongside highways in Khyber Pakhtunkhwa. Launching similar projects elsewhere in Pakistan can help the country cut imports of refined edible oil in the mid-term. But in the short-run, the focus on traditional oilseed crops must remain intact.

Cooking oil and ghee manufacturing companies continue to complain about a lack of incentives for undertaking expansion projects. But unless the government checks rampant smuggling of edible oil products from Pakistan to Afghanistan under the guise of Afghan transit trade — and unless the overall environment for investment by the private sector improves — one cannot expect any expansion in the production capacity of the edible oil industry.

Besides, the regularisation of hundreds of unregistered oil extracting units that produce low-quality edible oil products is also a big issue. Under the current challenging economic scenario, bringing them into the documented sector is a Herculean task. Any attempt to do so can backfire. Many of them can altogether stop operating, adding to the problem of joblessness. The over-concentration of edible oil industries in Punjab and Khyber Pakhtunkhwa has already become a great headache for Sindh-based industries. Except for the producers of major brands, smaller units in Sindh perpetually remain in trouble. —­MA

Published in Dawn, The Business and Finance Weekly, February 10th, 2020

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